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Monday, May 21, 2012

Advice for Investing in Facebook: Don't!

Q: Should I invest in Facebook?

As of now, Stock of Facebook is valued at $34.03 according to NASDAQ. Yesterday it was valued at $38.23 when the market closed. Today it fell $4.20 (a loss of 10.99%). People are going to have to realize that just because something is popular, it does not make a good investment. Facebook, unlike many other products, is an intangible item. Unlike minerals, computers, vehicles, and home cleaners, Facebook can not be touched. Instead, it is a virtual item that can gain and lose popularity according to a person's/society's whims. Further, it is not a necessity. You do not need it to run your heat, get from one place to another, compute, or stay clean. Unlike companies such as Apple, Microsoft, Procter and Gamble, AT&T, Conoco-Phillips, Starbucks, Amazon.com etc., Facebook is not something that one can expect to be around for at least another decade or two. Facebook also only has one major product, and that is social networking. I ask then, why would a person find this to be a sound investment?

Today Facebook fell by a decent margin. 10% is a big deal, especially for a person who had a million or more invested. If you had $1000 invested in Facebook, you would have lost over $100. If you had a million invested, you would have lost over $100,000. Of course, the stock could rebound and become worth more than it is worth today. However, I think that it's a fad stock that will probably eventually tank. Remember AOL? It was, at one time, the gateway to the internet for many, and a very valuable stock to hold. However, fast forward a few years later and AOL declined greatly. Like AOL, Facebook is trying to become the 'gateway to the internet' and while Facebook is seen as something that people enjoy showing their lives off on, it will not be the universal gateway to the internet.

I have a feeling we are going to see the same thing with Facebook that we saw with AOL. However, many people who know little about investing are likely to buy some Facebook stock. Some people may buy thousands of dollars worth because they think that since everyone uses Facebook, Facebook just must be so valuable. However, that is not how it works. Facebook is a site that many people use multiple times a day, however, it's main form of revenue is from advertising. If people became sick of using Facebook, or if Facebook makes a wrong move, or if a new social networking platform comes out (or something else is invented that people spend their online time using), Facebook will tank. Facebook will tank -- it's only a matter of time.

If I owned stock in Facebook, or was one of those cheeky "kids' who ended up multi-millionaires, I would have sold it the same day I got stock. Of course, I imagine they were told not to, as such an exodus could have easily brought the stock price further down. Plus, everyone was oh-so-very excited to be rollin' in the wealth. However, money is serious business, and one must be smart with their money if the expect to keep it. A fool and their money soon are parted they say, and I am willing to bet that Facebook is a losing (and foolish) investment. A sinking ship. The flavor of the month in the investment world.

Well, facebook doesn't actually sell anything apart from maybe advertisment. Investing in something without any material value that will probably be as dead as Myspace is a couple of years is always a bad idea, especially if you've just bought a bulk of shares.I know some people who were really tempted to buy some shares when they first went up for sale on the stock market. Now, they must be really happy they didn't. Facebook just ain't worth it :)